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On the relationship between absolute prudence and absolute risk aversion

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Author Info

  • M. A. Maggi
  • U. Magnani
  • M. Menegatti

    ()

Abstract

This paper shows how, under a few standard assumptions on the utility function, the monotonicity of absolute risk aversion (ARA) and of absolute prudence (AP) are connected. We get some general Propositions on the behaviour of the two functions regarding the positions and the number of their critical points. We also examine some cases where the shape of ap allows to completely determine that of ARA.

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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2003-EP04.

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Length: 12 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:par:dipeco:2003-ep04

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Keywords: absolute risk aversion; absolute prudence; precautionary saving;

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References

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  1. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
  2. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
  3. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  4. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  5. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
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Cited by:
  1. Martin Bohner & Gregory Gelles, 2012. "Risk aversion and risk vulnerability in the continuous and discrete case," Decisions in Economics and Finance, Springer, vol. 35(1), pages 1-28, May.
  2. Christian Josef Bauer & Wolfgang Buchholz, 2008. "How Changing Prudence and Risk Aversion Affect Optimal Saving," CESifo Working Paper Series 2438, CESifo Group Munich.
  3. Menegatti, Mario, 2014. "New results on the relationship among risk aversion, prudence and temperance," European Journal of Operational Research, Elsevier, vol. 232(3), pages 613-617.

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